Digiday research: Payment terms continue to get onerous for agencies

Payment terms continue to get onerous

Everyone's getting squeezed. What began as a way to cut costs during the 2008 financial crisis has turned into business du jour, with brands extending payment terms to as long as 120 days in some cases. It's caused some issues in the business: Grey recently resigned Coty because Coty insists on 120-day billing terms. Essentially, agencies are being treated like banks. And everything goes downhill from there: Because liability is sequential, agencies in turn can't pay their production partners or publishers, who in turn can't pay freelance staff, and so it goes. Almost everyone surveyed is seeing a client ask for extensions in payment cycles.

It's a contentious issue. The rise of procurement and ruthless cuts in order to drive efficiencies has many agencies with their backs up. At the agency town hall in Nashville, many people discussed at length how much more complicated it's all gotten. "Procurement is more involved" than ever before said one attendee.

Proportion of clients asking for extension in payment cycle

Another C-suite agency executive said that the bigger problem is the way agencies get paid — for their ideas. And the way that is calculated is complicated.

Things are slowly changing; more creative agencies are adding media capabilities and vice versa. "But the only thing we have are our ideas — and the ideas are process. We all want to get paid for brilliance but how do we change how exactly the brilliance is calculated?"

But ultimately, there is little they can do, since they are beholden to the client contract. But there do result some unorthodox clauses in contracts, like discounts if clients pay on time.